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II Central and Eastern Europe

: The V4 Countries and the EU: A Comparative Perspective

Vladimir Baldz, Katarina Karasovd and Allan M. Williams

Introduction

The chapter examines both the similarities and the differences in the trajectories of the four V4 (The Visegrad Four) countries. The similarities reflect the enduring influence of structural factors and shared external institutional factors (notably European Union (EU) membership, and the acquis communautaire of more than 250,000 pages, Aslund 2013, p. 11) but this is not a simple story of path dependency and lock-in (see Martin and Sunley 2006 for a theoretical overview). Instead, institutions were able to drive new and, to some extent, different pathways, and there are important national differences in say inward investment, migration or engagement with the knowledge economy, which indicate the importance of agency. Transformation theory provides a relatively flexible theoretical framework (Breisinger et al. 2009), which can account for both path dependency and how institutions drive new pathways. Essentially this visualises there being a series of interlocking and repetitive s-curves of growth, but also the possibility of break

V. Balaz (*)

The Institute for Forecasting of the Slovak Academy of Sciences, 81364 Bratislava, Slovakia

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Fish, Gill, Petrovic (eds.), A Quarter Century of Post-Communism Assessed, DOI 10.1007/978-3-319-43437-7_6

points where change is driven both by external shocks and by institutional changes from within (Martin 2010). The external shocks are manifest in the V4 countries, but there are also institutional changes, as in national economic strategies, and the policies which accompany these. Additionally, this chapter provides a broadly based analysis of the economic journey of the v4 countries, and compares their economic trajectories with those of the three southern European states which became EU members some two decades earlier. Building on the authors’ earlier review of the 1990s (Williams et al. 1998), this chapter focuses more on the post-2000 period, when there were illuminating shifts in the experiences of the southern and V4 countries.

Over just 15 years, the central eastern European V4 countries (Czech Republic, Hungary, Poland and Slovakia) transitioned from state socialism to membership of the EU, via a set of often brutal market reforms that were initiated by external shock. They had low growth rates in the final decade of state socialism and the shares of gross fixed capital formation (GFCF) in gross domestic product (GDP) decreased significantly in Slovakia, Poland and Hungary in the late 1980s (Table 5.1).

In contrast, the new southern members of the EU - Portugal and Spain in particular - benefited from inflows of FDI, and growth in GFCF and exports in the same period (Table 5.1, Fig. 5.1). After 1989, there were initially precipitous declines in the v4 economies, with cumulative decreases of 20-25% in their GDPs in 1990-1993 related to the sharp shock introduction of market reforms, the disintegration of traditional CMEA markets and difficulties in reorientating exports to EU151 markets, and changes in the product structure of exports.

The economic growth was driven by the EU15-centered exports, strong increases in GFCF, foreign direct investment (FDI), and potential of the market economy in the early 1990s. There was also accelerating inward investment in anticipation of EU accession. Slovakia initially lagged behind, but the end of the Meciar government in 1998, followed by institutional reforms (economic and political), led to Slovakia joining the accession negotiations, and to major FDI inflows in 2000-2002. Such was the pace of economic change and external reorientation in the V4 group that accession to the EU in 2004 appeared to represent a political formalisation of a process of economic integration that was already largely completed in terms of trade, FDI and migration flows. The transition was even more impressive when these trajectories were compared to those of the southern European

Table 5.1 Economic development in the V4 countries and southern EET members in 1980-2014

cz

HU

PL

SK

EL

ES

PT

V4 avjj

South avg

Period

Average annual growth in GDP (%)

1980-1989

1.4

1.5

1.4

1.7

0.8

2.8

3.4

1.5

2.3

1990-2004

1.2

1.2

2.5

1.7

2.9

3.0

2.4

1.7

2.8

2005-2013

2.1

0.9

3.9

3.9

-1.9

0.7

-0.3

2.7

-0.5

Gross fixed capital formation as % of GDP

1980-1989

25.5

24.0

20.9

29.4

25.8

22.4

28.1

25.0

25.4

1990-2004

29.3

23.0

19.4

30.3

23.3

24.4

25.2

25.5

24.3

2005-2013

27.2

21.8

20.3

23.8

18.1

24.7

19.6

23.3

20.8

Average annual growth in total factor productivity (%)

1980-1989

X

X

X

X

-0.9

1.3

1.6

X

0.7

1990-2004“

1.4

1.8

3.1

2.0

1.3

0.2

0.8

2.1

0.8

2005-2013

0.7

-0.2

0.9

2.2

-1.4

0.1

0.1

0.9

-0.4

Notes: a 1995-2004 for the CZ, HU, SK and PL. Simple averages for the V4 and Southern EU Members.

Source: Eurostat (2015f): National accounts; World Bank (2015): World Development Database. National statistical offices of the V4 countries; Sixta et al. (2013) for the Czech and Slovak Republics in 1980-1990; European Commission, Economic and Financial Affairs (2015): AMECO database.

Exports of goods and services in the V4 countries and southern EU member Countries, as % GDP. Source

Fig. 5.1 Exports of goods and services in the V4 countries and southern EU member Countries, as % GDP. Source: UNCTAD (2015b): Goods and services (BPM5): Trade openness indicators, annual, 1980-2014, International Trade in Goods and Services, online database

member states. Although the journey was largely shared, it was also uneven with, for example, Slovakia lagging behind initially, the Czech Republic forging ahead in terms of GDP per capita, Hungary being quicker to open its doors to FDI, and Poland’s trajectory being influenced by its earlier partial economic reforms in the 1980s.

By the mid-2000s, there was relatively strong and sometimes spectacular, FDI- and export-led economic growth in the V4 economies. Subsequently, the economic downturn following the 2008 financial crisis exposed the darker economic side of transition and integration in the form of increased vulnerability to external shocks, and a potentially precarious position in the international division of labour. But there were persistent variations in their trajectories, reflecting structural and institutional differences: domestic consumption was a far more important factor of growth in Poland which meant that it was less affected by the 2009 economic recession than the Czech and Slovak Republics and Hungary. Economic growth rebounded in 2010 in all V4 countries, albeit at considerably lower rates than before the crisis, but markedly more strongly than in the southern member states, which experienced deep recessions in the following years.

Having briefly outlined the economic trajectories of the V4 countries, the remainder of the chapter focuses in more detail on foreign trade, FDI, research and development (R&D), and labour migration. The chapter is essentially empirical in content, although framed by an understanding of transformation theory which emphasises the persistence of growth curves in conjunction with the possibility for break points.

 
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